Microfinance was originally meant to help people set up small businesses, but now it's also used to settle debts and - in India - even pay for weddings. However, that isn't necessarily a bad thing.

In the slums of the Indian city of Madurai, for example, families indeed take out microloans to pay for everyday conveniences as well as lavish weddings, as Dutch researcher Liselore Havermans can confirm.

Listen to Liselore Havermans speaking to RNW

Paying off debt, paying for weddings
Liselore Havermans - attached to the University of Amsterdam - spent six months carrying out research at the DHAN foundation in India. She visited shanty towns and spoke to people who have benefited from microfinance schemes, but was surprised to find few of them were entrepreneurs:

“Most people around here think that microcredit and microfinance is used to set up businesses, and just that. And from my research, I found that the first three reasons to take up microcredit are: paying off old debt, regular consumption and weddings.”

The slumdwellers of Madurai didn’t lie on their loan applications - and lenders are clearly happy to give them the money, whatever they choose to spend it on, according to Ms Havermans.

Weddings
One of her most interesting findings is that a high proportion of loan recipients in Madurai use the money for weddings. Ceremonies in India traditionally involve expensive jewellery, and most people simply can’t afford to buy it. But she says they’d be better off saving over a long period of time, rather than relying on one-off loans.

“It’s very important to not only look at microcredit, but to look at how we can combine giving people access to these credits with other things, such as financial education. Of course, when you spend it on a wedding, this is something that you can really save for. Saving is difficult when you’re poor but it’s much more difficult to pay off your debt with all the rates included.”

Ms Havermans doesn’t think her findings show microfinance isn’t working. In fact, she says, if it helps people to get out of debt then it must be a good thing:

“This is still a way of helping the poor. It’s not that because they’re not setting up a business that it’s a bad thing that they’re getting microcredit for something else. Of course, the loans they had before were much worse, they were with moneylenders from the neighbourhood and they charge much higher rates. So, for these people it’s still an improvement in their lives. They were in a horrible position – now they’re in a bit of a better position.”